Commentaries

PMC Weekly Review - August 4, 2017

Domestic equity markets continued their move higher in July, with the major US indices closing the month near record-level territory. Market participants focused their attention on positive developments, including strong economic data, robust corporate results, and an improving global macro environment, filtering out the negative media attention on the Executive branch and Congress’s lack of progress on healthcare and tax reform. With more than two-thirds of the S&P 500 Index’s (the Index) companies having reported second-quarter earnings, fundamentals are quite strong, with the Index on track to post double-digit earnings growth, marking the second straight quarter at those levels. At its July meeting, the Federal Open Market Committee (FOMC) left its key benchmark rate unchanged and stated it will begin reducing its bond holdings “relatively soon.” The first estimate of second-quarter gross domestic product (GDP) rose +2.6%, on an annual basis, a pickup from +1.2% in the first quarter, but was slightly weaker than expected. Personal consumption, the largest part of the economy, was higher by +2.8%.

Within this context, domestic equities were mostly higher during the month. The S&P 500 gained +2.1%, pushing its year-to-date (YTD) return to +11.6%, while larger gains were seen in the tech-heavy NASDAQ Composite, which advanced +3.4% and is now up +18.6% YTD. The Russell 2000 Index of small cap stocks underperformed relative to the Russell 1000 Index of large cap stocks, with a monthly return of +0.7 %, compared with +2.0%, respectively. Growth stocks outperformed value stocks, with 124 bps of difference between the Russell 3000 Growth Index’s return of +2.52% and the Russell 3000 Value Index’s return of +1.28%. In terms of sector performance, the top performers were Telecommunications and Information Technology, with returns of +6.4% and +4.3%, respectively. Industrials and Consumer Staples were the main laggards, gaining +0.1% and +0.6%, respectively. Commodity prices rose, with the broad commodity index gaining +2.3%, while real estate investment trusts (REITs) were positive but trailed their peers.

International equity markets mostly outperformed their domestic peers in July due to US dollar weakness and continued economic strength abroad. The MSCI World ex-U.S. Index increased by +3.0% for the month and is now up +16.2% YTD. International developed markets rallied behind continued improvement in the global economic landscape and a weaker US dollar. Preliminary readings of second-quarter Eurozone GDP growth were +0.6% quarter-over-quarter and +2.1% year-over-year, which matched expectations and was up from the first quarter. The MSCI EAFE Index, measuring performance of international developed markets, gained +2.9%. Emerging markets equities continued to post strong returns, with a gain of +6% on the MSCI Emerging Markets Index, which is now up +25.5% YTD. Regionally, China, EM Latin America, and EM Asia were the best relative performers, with returns of +8.9%, +8.3%, and +5.6%, respectively. The MSCI Europe Index gained +3.0% and is now up +18.8 YTD. Japan was the poorest relative performer but still posted a +2.0% gain.

Fixed-income markets posted modest gains during the month. The yield on the 10-Year Treasury Note began July at 2.30% and traded in a fairly tight range before closing the month at roughly where it opened, at 2.29%. Broad-based fixed income posted modest gains, with the Barclays U.S. Aggregate Bond Index increasing +0.4% for the month, and is now up +2.7% YTD. Global fixed income markets performed better, as the Barclays Global Aggregate ex-U.S. Index gained +2.7% and is now up +9.0% YTD, with a weaker US dollar fueling much of the return. The Barclays U.S. Corporate High Yield Index increased by +1.1% and is now up +6.1% YTD. Municipals posted a gain of +0.8%, mostly outperforming their taxable counterparts, and are now up 4.4% YTD.

The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this weekly review is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All investments carry a certain risk, and there is no assurance that an investment will provide positive performance over any period of time. An investor may experience loss of principal. Investment decisions should always be made based on the investor’s specific financial needs and objectives, goals, time horizon, and risk tolerance. The asset classes and/or investment strategies described may not be suitable for all investors and investors should consult with an investment advisor to determine the appropriate investment strategy. Past performance is not indicative of future results.

Information obtained from third party sources are believed to be reliable but not guaranteed. Envestnet|PMC™ makes no representation regarding the accuracy or completeness of information provided herein. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.

Investments in smaller companies carry greater risk than is customarily associated with larger companies for various reasons such as volatility of earnings and prospects, higher failure rates, and limited markets, product lines or financial resources. Investing overseas involves special risks, including the volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. Income (bond) securities are subject to interest rate risk, which is the risk that debt securities in a portfolio will decline in value because of increases in market interest rates. Exchange Traded Funds (ETFs) are subject to risks similar to those of stocks, such as market risk. Investing in ETFs may bear indirect fees and expenses charged by ETFs in addition to its direct fees and expenses, as well as indirectly bearing the principal risks of those ETFs. ETFs may trade at a discount to their net asset value and are subject to the market fluctuations of their underlying investments. Investing in commodities can be volatile and can suffer from periods of prolonged decline in value and may not be suitable for all investors. Index Performance is presented for illustrative purposes only and does not represent the performance of any specific investment product or portfolio. An investment cannot be made directly into an index.

Alternative Investments may have complex terms and features that are not easily understood and are not suitable for all investors. You should conduct your own due diligence to ensure you understand the features of the product before investing. Alternative investment strategies may employ a variety of hedging techniques and non-traditional instruments such as inverse and leveraged products. Certain hedging techniques include matched combinations that neutralize or offset individual risks such as merger arbitrage, long/short equity, convertible bond arbitrage and fixed-income arbitrage. Leveraged products are those that employ financial derivatives and debt to try to achieve a multiple (for example two or three times) of the return or inverse return of a stated index or benchmark over the course of a single day. Inverse products utilize short selling, derivatives trading, and other leveraged investment techniques, such as futures trading to achieve their objectives, mainly to track the inverse of their benchmarks. As with all investments, there is no assurance that any investment strategies will achieve their objectives or protect against losses.

Neither Envestnet, Envestnet|PMC™ nor its representatives render tax, accounting or legal advice. Any tax statements contained herein are not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Taxpayers should always seek advice based on their own particular circumstances from an independent tax advisor.